Beltway News: Farm Bill Update

House leadership whipped a vote count on a three-month extension of the 2008 Farm Bill but the count came up short of the 218 votes needed to pass the extension. Congress is scheduled to adjourn this coming Friday, September 21, for the election, but Speaker Boehner has not given an indication of any action he may take prior to adjourning. This means Congress will likely wait until the lame duck session after the November 6 General Election to take any action on the farm bill.

What happens if the farm bill is allowed to expire on September 30?

Does farm policy automatically revert to permanent law? Not immediately. The prospect of reverting back to "permanent law" that dates back to provision from 1938 and 1949 is a reality, but not likely to happen, but, if no action is taken on a new farm bill by next spring, it could happen. If that were to occur, it would trigger price supports based on percent of "parity", which are potentially higher than today's record commodity prices. For example, the support prices for dairy would be nearing $38.00/cwt (according to an analysis of June 2012 prices done by the Congressional Research Service (CRS). According to the same report (Possible Extension or Expiration of the 2008 Farm Bill), the support price for wheat would be over $13.58/bushel. Plus, not all commodities that currently receive federal support would be covered including soybeans, peanuts, sugar beets, sugar cane and chickpeas.

Because the commodity support provisions of permanent law are so radically different from current policy as well as inconsistent with today's farming practices, marketing system and international trade agreements, as well as potentially costly to the federal government, Congress is unlikely to let permanent law take effect. So, what does happen if no action is taken before September 30, 2012?

For the most part, not much right away. The CRS report noted that in the past 40 years, only the 1973 and 1977 farm bills were enacted before September 30. The 1981, 1985 and 1990 farm bills were enacted by December 31, and the most recent three farm bills have been enacted much later; April 1996, May 2002 and June 2008. As CRS points out, extensions of the farm bill are not common. Over the past four decades only the 2002 farm bill required extensions, six of the, and the first one of those was in December 2007. However, this farm bill debate is a little different in one respect: in the past only one farm bill (1990) was enacted after a midterm election, and no farm bill has started in one Congress needing to be reintroduced in a subsequent Congress.

Most farm and commodity price and income support programs expire at the end of the 2012 crop year. However, the Milk Income Loss Contract (MILC) program will expire on September 30, as will some energy programs and 37 mandatory programs without baseline funding that will discontinue even if Congress does an extension (these could only be reenacted with a new farm bill). Dairy price supports and export incentives expire on December 31.

The following are a few examples of what will happen to key areas without a new farm bill prior to September 30, 2012.

Commodities: Crop insurance which is set to become the most significant part of the future safety net for agriculture is permanent law and will continue with or without an extension of the 2008 farm bill. Crop insurance is currently authorized by the Federal Crop Insurance Act. The same goes for the Noninsured Crop Disaster Assistance Program (NAP) which is permanently authorized. An expiration of the 2008 farm bill will generally not impact row crop producers until next spring when they would typically sign up for commodity support programs for the 2013 crop year. The harvest of the 2012 crop will be covered by the 2008 farm bill for producers enrolled in ACRE or CCP payments even if those payments are scheduled for Fiscal Year 2013. The MILC program expires on September 30. The Dairy Price Support Program expires December 31.

Food Safety: Food Safety and Inspection Service activities are not reauthorized by the farm bill and will not expire with the expiration of the 2008 farm bill. These programs are funded through the Continuing Resolution (CR).

Rural Development: Most rural development programs are part of permanent law which are funded through annual appropriation bills and will continue to operate under the six-month CR. Programs such as the Rural Energy for America Program (REAP) would expire along with the 2008 farm bill.

Energy Programs: In general, the energy programs included in the 2008 farm bill do not have a baseline beyond FY 2012 and would end if the 2008 farm bill expires or if congress enacts a straight extension of the 2oo8 farm bill.

Sequestration:

If Congress can't agree with President Obama on an way to avoid the "fiscal cliff", the dramatic spending cuts known as sequestration in last year's budget act, USDA would be forced to reduce spending by about $8 billion next year from a budget of about $150 billion. Many programs would be cut, but some like crop insurance, the conservation reserve and food stamp spending would escape the knife.

While many in Washington think that the require cuts and tax hikes are so potentially damaging, not only to national defense but also to the economic recover, that warring political interests will be dragged into a compromise to avoid it. Nevertheless, depending on November election, it's not impossible to see a standoff that would trigger sequestration.

Members of Congress have begun looking at the impacts sequestration would have on important programs.